Should You Join a Medicare Advantage Plan?

Should You Join A Medicare Advantage Plan?

In 2020, there were 62.6 million people enrolled in Medicare. That same year, 24.1 million people — or about 39% of all Medicare beneficiaries — were also part of a Medicare Advantage plan.

These numbers have risen rapidly in the last couple of decades. In 2012, just 26% of Medicare beneficiaries were part of a Medicare Advantage plan. And 20 years ago, this figure stood at just 14%.

By 2030, the Congressional Budget Office estimates that about 51% of all Medicare beneficiaries will enroll in a Medicare Advantage plan. What is a Medicare Advantage plan? Why are they becoming so popular, and are they right for you?

Image source: Getty Images.

All about Medicare Advantage plans

Medicare Advantage plans, frequently known as “MA” or “Part C” plans, are health insurance plans offered by private companies to Medicare-eligible retirees that bundle together different parts of Medicare. The largest MA plan providers include UnitedHealthcare with 26% of all MA enrollees in 2020, Humana with 18%, Anthem Blue Cross (now Elevance) with 15%, and CVS with 11%.

By law, all MA plans must provide benefits covered by Original Medicare (Parts A and B). Medicare Part A provides hospital insurance and covers inpatient services like surgeries, overnight stays, skilled nursing care, hospice care, and home healthcare. Meanwhile, Medicare Part B covers outpatient services, which include doctor’s visits, preventative healthcare, mental healthcare, durable medical equipment, and ambulance services.

About 90% of all MA plans will also provide generic and brand-name prescription drug coverage under Medicare Part D. Some MA plans may also offer benefits not covered by Medicare, like gym memberships, vision, hearing, or dental services. Additionally, all MA plans come with out-of-pocket limits, so there’s a cap on how much you’ll have to pay for your healthcare in any given year.

Medicare Advantage plan costs

For most MA plans, you’ll be responsible for the Medicare Part B premium — which ranges between $171.10 and $578.30 per month, depending on your income — but little else.

That’s because most Medicare Advantage plans don’t come with an additional plan premium. In fact, according to the Kaiser Family Foundation, 65% of MA plans charged a $0 premium in 2021, while the average plan premium stood at just $21.

On the other hand, MA plans that offered the most flexibility, like preferred provider organization (PPO) plans, charged an average monthly premium of $48 on top of the Part B premium. However, hefty premiums are typically rare, and just 5% of all MA plan participants reported paying more than $100 in premiums per month.

Of course, MA plans will also come with deductibles, copays (or coinsurance), and other cost-sharing charges — all of which will vary depending on the plan you choose. In any case, make sure to account for these expenses when budgeting for your annual out-of-pocket healthcare costs.

Medicare Advantage plan types

Medicare Advantage plans package and deliver coverage for these healthcare services using a managed care system, making them similar to the employer-sponsored or self-purchased private health insurance plans that are available to non-retirees.

There are five types of MA plans:

  • Health Maintenance Organization (HMO): These plans are for light to moderate users of healthcare services, and provide more restrictive coverage solutions at a lower cost. In an HMO, you’ll need a referral from a primary care physician to see any specialist doctor. In addition, HMOs don’t cover out-of-network services, so you’re limited exclusively to service providers within your plan’s network.
  • Preferred Provider Organization (PPO): These plans are best for moderate to heavy users of healthcare services, and offer more flexibility than their HMO counterparts. Notably, you won’t need a referral to see a specialist. PPOs also offer an out-of-network coverage benefit, so you can see any provider you want — though it’ll still cost you more to see an out-of-network provider than an in-network one.
  • Private Fee-for-Service Plan (PFFS): In a PFFS, you can see any service provider that accepts Medicare — and nearly 97% of all doctors in the country do. As its name suggests, you pay a fee every time you see a provider. Unlike HMOs or PPOs, PFFS plans do not distinguish between in-network or out-of-network coverage.
  • Special Needs Plan (SNP): These plans provide tailored coverage to groups of people with certain health conditions, such as cancer, dementia, alcoholism, heart failure, or HIV/AIDS. You can only remain in an SNP if you currently have a covered condition. Otherwise, you must join another MA plan.
  • Medical Savings Account (MSA): These plans combine a high-deductible MA health plan with a tax-advantaged savings account that functions similarly to a health savings account (HSA). MSAs don’t provide drug coverage under Medicare Part D, so you’ll need to join a separate plan for coverage.

Are Medicare Advantage plans right for you?

MA plans are becoming increasingly popular for several reasons. First, they’re designed to be familiar and function much like the health plans you were used to prior to retirement. They’re also convenient, allowing you to get coverage for a large range of services under a single plan.

On the other hand, MA plans are more restrictive than Original Medicare, and generally disincentivize plan participants from seeking care outside their networks.

Despite the lower monthly premiums, MA plan participants may also face higher out-of-pocket costs than enrollees who opt for a combination of Original Medicare and Medigap. This is because MA plans typically come with higher cost-sharing charges, which may work against you in a year that you need a lot of healthcare services.

As usual, all healthcare coverage options will come with both benefits and drawbacks, and the best coverage option will depend on factors like your current and anticipated health, desire for flexibility, and level of risk tolerance. In any case, getting informed about your healthcare choices in retirement is an important first step toward finding the coverage that works best for you.

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Fool contributor Ryan Sze has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health, CVS Health Corporation, and UnitedHealth Group. The Motley Fool has a disclosure policy.